Cannabis extraction services, lab testing and consulting, and large-scale indoor marijuana farming each offer growth potential through strategic partnerships with larger firms. At the same time, the company’s valuation is more realistic than many of its competitors—which adds to its appeal.
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VALENS GROWORKS CORP., $4.10, symbol VGW on the Canadian Securities Exchange (Shares outstanding: 108.7 million; Market cap: $445.7 million; TSI Cannabis Quality Rating (CQR): ; www.valensgroworks.com), is involved in three main areas of the cannabis industry: the extraction of cannabis oils; research into cannabis and its chemical compounds; and growing cannabis.
The Canadian Securities Exchange (CSE), formerly the Canadian National Stock Exchange (CNSX), is one of our country’s alternative stock exchanges.
You can trade Canadian Securities Exchange stocks through your broker. You can also get stock quotes at www.thecse.com.
Valens recently received conditional approval to list on the Toronto Venture Exchange.
Valens continues to enter into extraction agreements to process marijuana from producers into cannabis resins and oils (see Valens Agritech below).
The most recent is with producer Tilray Inc. (symbol TLRY on Nasdaq). Under the initial two-year term of agreement, Valens will extract on a fee for service basis a minimum annual quantity of 60,000 kilograms of dried cannabis and hemp biomass.
In April 2019, Valens reached a multi-year extraction services agreement to provide cannabis and hemp extraction services to Hexo Corp. (symbol HEXO on Toronto). Hexo is a leading Canadian cannabis producer. The agreement has an initial 2-year term from the date of the first shipment, with Hexo supplying Valens with an annual minimum of 30,000 kilograms in the first year and 50,000 kilograms in the second year of cannabis and hemp biomass.
In December 2018, Valens reached a deal with major producer Canopy Growth (symbol WEED on Toronto). Valens will provide extraction services to process Canopy Growth’s whole flower (buds) and trim (less-potent leaves) into high-grade cannabis resin.
In November 2018, Valens reached a similar agreement with Harvest One (symbol HVT on the Toronto Venture Exchange). Harvest One’s subsidiary, United Greeneries, will ship bulk quantities of dried cannabis to Valens over an initial three-year term. The company will receive and process the cannabis into bulk resin or other cannabis oil derivative products. Valens will also conduct research services for Harvest One to support that company’s product line development including health and wellness products, beverages, vape pens, and nutraceuticals using cannabis oil derivative products. Valens believes that the significance of these products is reflected in the more developed markets in the U.S., where raw flower makes up less than half of the products sold.
Also in November 2018, Valens entered into a multi-year cannabis extraction services agreement with B.C.-based GTEC Holdings (symbol GTEC on the Toronto Venture Exchange). Under the deal, GTEC will ship bulk quantities of dried cannabis to Valens for an initial four-year term. The company will then process the cannabis cannabis oil derivatives as required by GTEC before bulk shipping the products back to GTEC for final processing and sale.
Valens operates through three main businesses:
Valens Agritech focuses on the company’s cannabis extraction services and has production capacity of 425,000 kilograms of dried cannabis and hemp biomass per year. The company now has just a small growing facility to supply marijuana for extraction. Instead it focuses on providing extraction services to other cannabis producers.
The company has started construction on its recently acquired adjoining facility in
Kelowna. This facility is forecast to significantly increase the company’s output next year—rising its extraction capacity to over 1,000,000 kilograms per annum. This new facility will also expand Valens’ capacity to make “white label” products for third parties including capsules, vaporizers, topicals, edibles and concentrates.
Valens focuses on using supercritical CO2 to extract cannabis oil.
CO2 can be turned into a liquid when you expose it to high pressure and temperatures below -69 degrees. By further increasing pressure and reducing the temperature, the liquid becomes supercritical. This means the CO2 can then take on the properties of both a gas and a liquid. When this supercritical CO2 passes through cannabis in an extractor, it pulls out all the cannabinoids such as THC and CBD. There is no ethanol alcohol or butane used throughout the process. The resulting CO2 oil is an extremely high-grade concentrate that contains neither toxins nor unwanted elements. It can be vaped or otherwise vapourized and inhaled to produce a high or deliver the desired medicinal dose.
Valens Labs is a cannabis testing lab and, in collaboration with Thermo Fisher Scientific (symbol TMO on New York), is developing a “Centre of Excellence in Plant Based Medicine Analytics.” Because of what it sees as its unique expertise, Valens Labs aims to provide analytical services and consulting across the cannabis industry.
Valens Farms will operate a cannabis growing facility. In June 2018, Valens entered into a joint venture agreement with Kosha Projects Inc. for the construction of a $75 million, 400,000-square-foot cannabis production facility. After Kosha’s recovery of its construction and development cost, Valens is entitled to a 51% interest in the assets and will earn 50% of revenues from operations. Once fully constructed, this facility will be capable of producing more than 50,000 kilograms per year.
Valens Farms will grow cannabis specifically for extraction and will employ a mono-cropping methodology. Most producers have anywhere from two to 20 strains of cannabis under production, each with slightly different cultivation demands. Valens believes this compromises quality and consistency. By employing mono-cropping, Valens hopes to protect the genetic purity of its strain and optimize the quality and volume of its cannabis oil.
As the company raised capital, developed its business and invested in capacity, it lost $8.3 million in 2016, $4.4 million in 2017, and $15.9 million in 2018.
In the quarter ended February 28, 2019 (its latest filing), Valens reported revenue of $2.2 million, compared to nil a year earlier. It lost $6.4 million, or $0.07 a share, in the latest quarter, compared to a loss of $3.7 million, or $0.06 a share (on fewer shares outstanding) a year earlier.
The company recently raised $43.1 million in a share issue at $2.95 each.
Valens aims to position itself as a producer of the highest quality cannabis oils, thanks to its research and development with Thermo Fisher Scientific as a partner.
However, startups are inherently risky, especially so in a new market with an uncertain regulatory environment and low barriers to entry. If its niche proves to be attractive, it could attract competition from much larger cannabis industry rivals.
Still, the gap between Valens’s market cap and its sales isn’t as big as it is for many of its competitors. That could also make the company a potential takeover candidate. While that alone is not reason enough to buy the stock, it adds to Valens’s appeal.
Valens GroWorks. has a 3-Leaf Cannabis Quality Rating (CQR). The stock is a speculative buy for aggressive investors who want exposure to the marijuana industry.
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